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Zero Marginal Thinking: Jeremy Rifkin gets it all wrong

A note from the publisher says Jeremy Rifkin himself asked them to ship me a copy of his latest book, The Zero Marginal Cost Society. It’s obvious why: in writing about the economics of open-source software, he thinks I provided one of the paradigmatic cases of what he wants to write about – the displacement of markets in scarce goods by zero-marginal-cost production. Rifkin’s book is an extended argument that this is is a rising trend which will soon obsolesce not just capitalism as we have known it, but many forms of private property as well.

Alas for Mr. Rifkin, my analysis of how zero-marginal-cost reproduction transforms the economics of software also informs me why that logic doesn’t obtain for almost any other kind of good – why, in fact, his general thesis is utterly ridiculous. But plain common sense refutes it just as well.

Here is basic production economics: the cost of a good can be divided into two parts. The first is the setup cost – the cost of assembling the people and tools to make the first copy. The second is the incremental – or, in a slight abuse of terminology, “marginal” – cost of producing unit N+1 after you have produced the first copy.

In a free market, normal competitive pressure pushes the price of a good towards its marginal cost. It doesn’t get there immediately, because manufacturers need to recoup their setup costs. It can’t stay below marginal cost, because if it did that the manufacturer loses money on every sale and the business crashes.

In this book, Rifkin is fascinated by the phenomenon of goods for which the marginal cost of production is zero, or so close to zero that it can be ignored. All of the present-day examples of these he points at are information goods – software, music, visual art, novels. He joins this to the overarching obsession of all his books, which are variations on a theme of “Let us write an epitaph for capitalism”.

In doing so, Rifkin effectively ignores what capitalists do and what capitalism actually is. “Capital” is wealth paying for setup costs. Even for pure information goods those costs can be quite high. Music is a good example; it has zero marginal cost to reproduce, but the first copy is expensive. Musicians must own costly instruments, be paid to perform, and require other capital goods such as recording studios. If those setup costs are not reliably priced into the final good, production of music will not remain economically viable.

Fifteen years ago I pointed out in my paper The Magic Cauldron that the pricing models for most proprietary software are economically insane. If you price software as though it were (say) consumer electronics, you either have to stiff your customers or go broke, because the fixed lump of money from each unit sale will always be overrun by the perpetually-rising costs of technical support, fixes, and upgrades.

I said “most” because there are some kinds of software products that are short-lived and have next to no service requirements; computer games are the obvious case. But if you follow out the logic, the sane thing to do for almost any other kind of software usually turns out to be to give away the product and sell support contracts. I was arguing this because it knocks most of the economic props out from under software secrecy. If you can sell support contracts at all, your ability to do so is very little affected by whether the product is open-source or closed – and there are substantial advantages to being open.

Rifkin cites me in his book, but it is evident that he almost completely misunderstood my arguments in two different ways, both of which bear on the premises of his book.

First, software has a marginal cost of production that is effectively zero, but that’s true of all software rather than just open source. What makes open source economically viable is the strength of secondary markets in support and related services. Most other kinds of information goods don’t have these. Thus, the economics favoring open source in software are not universal even in pure information goods.

Second, even in software – with those strong secondary markets – open-source development relies on the capital goods of software production being cheap. When computers were expensive, the economics of mass industrialization and its centralized management structures ruled them. Rifkin acknowledges that this is true of a wide variety of goods, but never actually grapples with the question of how to pull capital costs of those other goods down to the point where they no longer dominate marginal costs.

There are two other, much larger, holes below the waterline of Rifkin’s thesis. One is that atoms are heavy. The other is that human attention doesn’t get cheaper as you buy more of it. In fact, the opposite tends to be true – which is exactly why capitalists can make a lot of money by substituting capital goods for labor.

These are very stubborn cost drivers. They’re the reason Rifkin’s breathless hopes for 3-D printing will not be fulfilled. Because 3-D printers require feedstock, the marginal cost of producing goods with them has a floor well above zero. That ABS plastic, or whatever, has to be produced. Then it has to be moved to where the printer is. Then somebody has to operate the printer. Then the finished good has to be moved to the point of use. None of these operations has a cost that is driven to zero, or near zero at scale. 3-D printing can increase efficiency by outcompeting some kinds of mass production, but it can’t make production costs go away.

An even more basic refutation of Rifkin is: food. Most of the factors of production that bring (say) an ear of corn to your table have a cost floor well above zero. Even just the transportation infrastructure required to get your ear of corn from farm to table requires trillions of dollars of capital goods. Atoms are heavy. Not even “near-zero” marginal cost will ever happen here, let alone zero. (Late in the book, Rifkin argues for a packetized “transportation Internet” – a good idea in its own terms, but not a solution because atoms will still be heavy.)

It is essential to Rifkin’s argument that constantly he fudges the distinction between “zero” and “near zero” in marginal costs. Not only does he wish away capital expenditure, he tries to seduce his readers into believing that “near” can always be made negligible. Most generally, Rifkin’s take on production economics calls to mind the famous Orwell quote: “One has to belong to the intelligentsia to believe things like that: no ordinary man could be such a fool.”

But even putting all those mistakes aside, there is another refutation of Rifkin. In his brave impossible new world of zero marginal costs for goods, who is going to fix your plumbing? If Rifkin tries to negotiate price with a plumber on the assumption that the plumber’s hours after zero have zero marginal cost, he’ll be in for a rude awakening.

The book is full of other errors large and small. The particular offence for which I knew Rifkin before this book – wrong-headed attempts to apply the laws of thermodynamics to support his desired conclusions – reappears here. As usual, he ignores the difference between thermodynamically closed systems (which must experience an overall increase in entropy) and thermodynamically open systems in which a part we are interested in (such as the Earth’s biosphere, or an economy) can be counter-entropic by internalizing energy from elsewhere into increased order. This is why and how life exists.

Another very basic error is Rifkin’s failure to really grasp the most important function of private property. He presents it as only as a store of value and a convenience for organizing trade, one that accordingly becomes less necessary as marginal costs go towards zero. But even if atoms were weightless and human attention free, property would still function as a definition of the sphere within which the owner’s choices are not interfered with. The most important thing about owning land (or any rivalrous good, clear down to your toothbrush) isn’t that you can sell it, but that you can refuse intrusions by other people who want to rivalrously use it. When Rifkin notices this at all, he thinks it’s a bad thing.

The book is a blitz of trend-speak. Thomas Kuhn! The Internet of Things! 3D printing! Open source! Big data! Prosumers! But underneath the glossy surface are gaping holes in the logic. And the errors follow a tiresomely familiar pattern. What Rifkin is actually retailing, whether he consciously understands it that way or not (and he may not), is warmed-over Marxism – hostility to private property, capital, and markets perpetually seeking a rationalization. The only innovation here is that for the labor theory of value he has substituted a post-labor theory of zero value that is even more obviously wrong than Marx’s.

All the indicia of cod-Marxism are present. False identification of capitalism with vertical integration and industrial centralization: check. Attempts to gin up some sort of an opposition between voluntary but non-monetized collaboration and voluntary monetized trade: check. Valorizing nifty little local cooperatives as though they actually scaled up: check. Writing about human supercooperative behavior as though it falsifies classical and neoclassical economics: check. At times in this book it’s almost as though Rifkin is walking by a checklist of dimwitted cliches, ringing them like bells in a carillon.

Perhaps the most serious error, ultimately, is the way Rifkin abuses the notion of “the commons”. This has a lot of personal weight for me, because I have lived in and helped construct a hacker culture that maintains a huge software commons and continually pushes for open, non-proprietary infrastructure. I have experienced, recorded, and in some ways helped create the elaborate network of manifestos, practices, expectations, how-to documents, institutions, and folk stories that sustains this commons. I think I can fairly claim to have made the case for open infrastructure as forcefully and effectively as anyone who has ever tried to.

Bluntly put, I have spent more than thirty years actually doing what Rifkin is glibly intellectualizing about. From that experience, I say this: the concept of “the commons” is not a magic wand that banishes questions about self-determination, power relationships, and the perils of majoritarianism. Nor is it a universal solvent against actual scarcity problems. Maintaining a commons, in practice, requires more scrupulousness about boundaries and respect for individual autonomy rather than less. Because if you can’t work out how to maximize long-run individual and joint utility at the same time, your commons will not work – it will fly apart.

Though I participate in a huge commons and constantly seek to extend it, I seldom speak of it in those terms. I refrain because I find utopian happy-talk about “the commons” repellent. It strikes me as at best naive and at at worst quite sinister – a gauzy veil wrapped around clapped-out collectivist ideologizing, and/or an attempt to sweep the question of who actually calls the shots under the rug.

In the open-source community, all our “commons” behavior ultimately reduces to decisions by individuals, the most basic one being “participate this week/day/hour, or not?” We know that it cannot be otherwise. Each participant is fiercely protective of the right of all others to participate only voluntarily and on terms of their own choosing. Nobody ever says that “the commons” requires behavior that individuals themselves would not freely choose, and if anyone ever tried to do so they would be driven out with scorn. The opposition Rifkin wants to find between Lockean individualism and collaboration does not actually exist, and cannot.

Most of us also understand, nowadays, that attempts to drive an ideological wedge between our commons and “the market” are wrong on every level. Our commons is in fact a reputation market – one that doesn’t happen to be monetized, but which has all the classical behaviors, equilibria, and discovery problems of the markets economists usually study. It exists not in opposition to monetized trade, free markets, and private property, but in productive harmony with all three.

Rifkin will not have this, because for the narrative he wants these constructions must conflict with each other. To step away from software for an instructive example of how this blinds him, the way Rifkin analyzes the trend towards automobile sharing is perfectly symptomatic.

He tells a framing story in which individual automobile ownership has been a central tool and symbol of individual autonomy (true enough), then proposes that the trend towards car-sharing is therefore necessarily a willing surrender of autonomy. The actual fact – that car-sharing is popular mainly in urban areas because it allows city-dwellers to buy more mobility and autonomy at a lower capital cost – escapes him.

Car sharers are not abandoning private property, they’re buying a service that prices personal cars out of some kinds of markets. Because Rifkin is all caught up in his own commons rhetoric, he doesn’t get this and will underestimate what it takes for car sharing to spread out of cities to less densely populated areas where it has a higher discovery and coordination cost (and the incremental value of individual car ownership is thus higher).

The places where open source (or any other kind of collaborative culture) clashes with what Rifkin labels “capitalism” are precisely those where free markets have been suppressed or sabotaged by monopolists and would-be monopolists. In the case of car-sharing, that’s taxi companies. For open source, it’s Microsoft, Apple, the MPAA/RIAA and the rest of the big-media cartel, and the telecoms oligopoly. Generally there is explicit or implicit government market-rigging in play behind these – which is why talking up “the commons” can be dangerous, tending to actually legitimize such political power grabs.

It is probably beyond hope that Jeremy Rifkin himself will ever understand this. I write to make it clear to others that he cannot recruit the successes of open-source software for the anti-market case he is trying to make. His grasp of who we are, his understanding of how to make a “commons” function at scale, and his comprehension of economics in general are all fatally deficient.

Music is a good example; it has zero marginal cost to reproduce, but the first copy is expensive. Musicians must own expensive instruments, be paid to perform, and require other capital goods such as recording studios. If those setup costs are not reliably priced into the final good, production of music will not remain economically viable.

Bad example.

There are very, very many good musicians who would like to distribute digital music for marginal costs. Example in point, in 2000, all works of JS Bach were distributed by a convenience store for around $1 a CD. The musicians were participating for almost nothing. It was a huge success (~600,000 CD’s were sold).

This market of music is dominated by publishers that have been able to monopolize distribution channels. The high prices are not set by the musicians, but by the record companies.

>Example in point, in 2000, all works of JS Bach were distributed by a convenience store for around $1 a CD.

This is hobby work and altruism – a fine thing in its own terms, but in effect it gets priced into the actual paying gigs the musicians are doing. I know exactly how this dance goes, having been a musician myself.

Merciful $DEITY. How’d you manage to get through that book? I’d have gotten a few chapters in, then taken a drive out into farm country to find a freshly fertilized field to add a bit more manure to by throwing in the book.

“Rifkin cites me in his book, but it is evident that he almost completely misunderstood my arguments in two different way, both of which bear on the premises of his book.”

You are in eminent company (with e.g. Lord Kelvin). From Rifkin’s earlier book _Entropy_ (“The Entropy Law” chapter; p. 37 in the paperback in my influential-horrible-books collection): “A point that needs to be emphasized over and over again is that here on earth material entropy is continually increasing and must ultimately reach a maximum. That’s because the earth is a closed system in relation to the universe. That is, it exchanges energy but not matter with its surroundings.”

I don’t see how to quote nearly enough to demonstrate this, but no, none of the things that you might hope might significantly ameliorate this misstatement of the second law of thermodynamics are there. In particular, Rifkin really does appeal to the second law of thermodynamics as his authority — not like e.g. information theorists who call something entropy but establish its properties for themselves rather than handwavingly appealing to thermodynamics — and therefore it is the purest inexcusable nonsense to say that when energy flows no entropy comes along for the ride. (The basic proportionality constant for how much entropy ordinarily comes along for the ride with an energy flow is not some obscure abstraction, it is (absolute) temperature — it is not an excusable mistake to pretend that this does not exist in a treatment of *thermo*dynamics.) It is also silly to believe the quoted claim even if you don’t know anything about thermodynamics: there is no way to reconcile this with claim day-to-day observations like muddy salty water being distilled into pure steam, falling as nice ordered crystals, and mixing back into muddy water over and over for hundreds of millions of years. (It’s not clear to me how to reconcile it even with precipitation over thousands of years of recorded history. At least when creationists misstate the second law of thermo in similar ways, this disconnect with day to day reality could be retconned in canon by a legion of Jack Frost cherubs miraculously creating the observed snowflakes and icy window decoration tracery.) It’s as cynically absurd as claiming to be against racism while holding that some special unquantifiable Asian racial flaw makes it not just OK but trumps-the-Constitution vital to impose anti-Jewish-style quotas against Asians in academic admissions: not even trying to pretend to honestly apply the supposed principle, just opportunistically invoking it or forgetting it in a ridiculously selective way to attack rivals.

Some readers may be surprised that this didn’t stop _Entropy_ from accumulating an impressive collection of approving review blurbs for the back cover and three pages inside the front cover: e.g. Sen. Mark Hatfield, _New York Times_, _Business Week_, and _New Scientist_. Such readers should adjust their cynicism meter; you’re welcome.

Some of the review blurbs just sound comprehensively technically clueless and disconnected from any interest in real-world understanding, while some may grasp that the book is technically wrong but if so cynically downplay that while cheering it as a talking point that supports their preferred conclusions. That might be what’s going on in the quoted blurb from the _New York Times_ is “Mr. Rifkin readily admits that ‘The Entropy Law is something that needs to be felt as much as understood’ and it is as a prophetic jeremiad that this book should be read. … He is profoundly correct when he writes that we must abandon pride for humility, and use no more than our fair share of the world’s remaining energy so that there can be a future.”

We already HAVE a packetized transportation Internet — shipping containers. You can go to smaller packets, but look at the USPS and UPS limits on “packets”. There’s a reason why there are shipping companies, and warehouses and private trucks.

Rifkin wants to go further and turn the whole deal into a self-organizing forwarding network in which (in particular) warehouses that serve only single companies are rare and freight forwarders function like routers between these “buffers”. It’s not a bad idea, and it’s not original with him.

“non-monetized markets” is a term that makes no sense. What is the price of a dollar? Why, it is the eggs or milk you could buy with it. What, then, is the price of a non-monetized egg or milk? Why, it is the milk or egg you could trade it for. Markets that don’t deal in money aren’t markets without trade. They are markets that don’t reduce things to a number — that’s ALL.

Money confuses the fuck out of people. It is no more or less than a common denominator. It is the thing that people will always accept or give in trade for something else.

This kind of discussion is the reason why I don’t find it offensive when open source is referred to as communism. Communism actually *works* for software, because the marginal cost of production is essentially zero. It *doesn’t* work as a system of government because the marginal cost of most goods and services is *not* zero.

If I have a loaf of bread and give it to you, I don’t have it anymore and I can’t eat it. On the other hand, if I have a piece of software and I give it to you, I still have it.

@esr
“This is hobby work and altruism – a fine thing in its own terms, but in effect it gets priced into the actual paying gigs the musicians are doing. I know exactly how this dance goes, having been a musician myself.”

Then you should know that all but a vanishing small number of musicians earn their complete living from gigs. Less than 0.1% of the revenues of over the counter and online music sales end up with the musicians. They earn more when they give away recordings of their music at concerts (This is exactly what Hans Dulfer does)

>Then you should know that all but a vanishing small number of musicians earn their complete living from gigs.

Of course that’s true but it’s not relevant. The need to meet setup costs doesn’t go away because they’re sitting in a concert hall rather than a studio. It gets priced into the cost of the tickets; the fact that the product is cheap to reproduce doesn’t change that.

@esr: An interesting history to consider is that of the Rating Agencies (Moody’s et al.).
Once upon a time they made their money by selling their ratings in a paper reference guide (think Consumer Reports for stocks and bonds, geared towards professional investors).
In this environment, an increase in the quality of ratings accuracy would enable an increase in the price they could demand.
Along came the photocopier. The ratings’ agencies worried that in an era of next-to-zero duplication costs, their business model would fall apart. Instead, they decided to charge a fee to the company being rated. Many major funds and pension plans required that a stock or bond have a minimum rating in order to be held, so company shareholders wanted the company to be rated.
Then you end up with a perverse incentive where the source of the revenue for the ratings’ agencies can go up based on less accurate assessment quality.
And then you get the Housing Crisis (details omitted).

As Bruce Schneier pointed out: “Anybody could have predicted the car, but nobody predicted the suburb”. It sounds like the argument is that: ceteris paribus the cost of everything goes to zero. However, not everything stays the same.

The costs of shipping are based on both weight as well as volume. Some stores (eg. Ikea) are able to achieve great savings by minimizing the size of things and thus delivering better quality at a lower price than comparable items. Going to 3-D printing might have similar results.

As for distributing the heavy bits, I would note that we already have heavy stuff delivered cheaply to our houses: water, priced at a few dollars per ton. Is there a way to do printable plastic this way? Maybe. The cost of drinking water certainly isn’t zero, but for most people it doesn’t really factor into budget concerns, either.

So I tried to find out wtf “cod-Marxism” was. And I came across the Google Books result (from: The Soviet Ambassador: The Making of the Radical Behind Perestroika
by Christopher Shulgan):

“It is impermissible and foreign to the spirit of Marxism-Leninism to elevate one person, to transform him into a superman possessing supematural characteristics, akin to those of a Cod,” Khrushchev said.

An OCR error, it turns out. Still don’t know what cod-Marxism is. But I’ll survive.

Oh, crap. I committed a Britishism and forgot that Americans often don’t know it. Sorry, I do that sometimes. Comes of having lived in England in some formative years. Sorry.

In British usage, “cod-” anything is (roughly) a form of it that is debased by stupidity to the point of unintentional self-parody or mockery. Commenters from Blighty might wish to add their own gloss.

There is a cosmos of complexity in that phrase as it applies to Rifkin. If his book succeeds in propagating a false memetic, then his malice is both competent and advanced (as in sophisticated). To earn a living ruining minds is sinister at the genius level.

Of course it does. But you seem to have lost the point I was making in the OP, which is that zero marginal costs don’t make capital costs for the first copy go away. Those have to be paid somehow. It is irrelevant to my point exactly how they are paid.

@ESR >First, software has a marginal cost of production that is effectively zero

It seems to me that this leads to another hole in Rifkin’s thesis,although I don’t recall how you formally handled this in other works. See my question below …

Software has a near zero marginal cost _for the same version_, but for additional versions, the new setup (sunk) cost is not 0. One of the advantages of open source software is that the additional capital expenditures to do a major version bump are mitigated in a non-trivial way by the developers themselves.

Since open source software that doesn’t get used dies on the vine, there is, first and foremost, little expenditure of “keeping bad solutions alive”. This is a huge factor. Then too, there is assembling the community, bringing relevant talent to fix the problems, the education of the community by supporting minor and patch releases, and so on. All of these, in general, make the cost of a major version bump for Open source software much cheaper than closed source.

But all of those arguments are valid _because_ of capitalism, not in spite of it. To take one point, only the free(er) flow of capital allows appropriate talent to converge on a project in a semi-organized way. Witness your work with the Emacs repo. A lot of talented folks are spending a lot of their time and effort because they see end value in the process, and will gain value thereby.

So @esr, how do you align the long tail of maintenance into the sunk v marginal cost framework?

Interestingly enough, a certain segment of PC Games are actually following the same basic progression so i don’t think that gaming is the acknowledged “counter example” you think it is. In a nutshell, Modern multiplayer gaming has removed the “next to no service requirements” exception.

On one hand we have the “Competitive shooter” line of which the consumers are demanding more maps, more guns and plenty of balance updates.

On the other hand we have the Massively Multiplayer Online Gaming crowd who have for more than a decade paid $15 a month for access to servers capable of processing the thousands of concurrent players as well as the same content and balance updates. This has moved to the point that the thing that tends to distinguish an MMO is not the quality of the product at release(though there are aspects of that) but the speed at which they can move post release.

What makes the second case even more interesting is that competitive pressure has slowly moved a percentage of the MMO market from the above subscription model to a newer “Free to play” model where servers, support and content are all paid for by “micro-transactions”(IOS calls them “In-App” purchases from memory but it all derives from the same idea). The most obvious example of microtransactions in action is Zynga, the facebook game company who is sometimes downright sociopathic about being evil but was undeniably hugely profitable based on this model. Best example of this in the MMO space is “Star Wars: The Old Republic” which went from a dying subscription game to a quite successful micro-transaction based game.

So far from being an exception, i think certain segments of gaming are directly supporting your thesis.

The places where open source (or any other kind of collaborative culture) clashes with what Rifkin labels “capitalism” are precisely those where free markets have been suppressed or sabotaged by monopolists and would-be monopolists [snip] For open source, it’s Microsoft,

Beyond that, I found your brief mention of reputation as a currency interesting. It seems to me that while Reputation in Open Source projects isn’t directly convertible to ca$h, it is related in that one can use one’s reputation to get actual salaried full or part time coding jobs, not to mention paid speaking engagements, free swag from companies who want endorsement and the like.

I’ve got one point that I think needs to be addressed – we tend to conflate “capitalism” with free market. It isn’t. Even communism, despite the propaganda coup of convincing people that it does away with the need to, accumulates capital in raw materials and skills. The difference is truly one of Free Market vs. Communism – one of “Who decides”.

So yeah. Open source is NOT communism. While a number of projects are shepherded and guided by one or a few core leaders, no one does this because they have to to eat. No one puts a gun to their heads. This is a case of forming voluntary associations for the good of the perceived community.

>I’ve got one point that I think needs to be addressed – we tend to conflate “capitalism” with free market. It isn’t. Even communism, despite the propaganda coup of convincing people that it does away with the need to, accumulates capital in raw materials and skills.

I think you have a couple of issues unhelpfully entangled here.

Of course it’s true that communist systems have to do capital accumulation. But that doesn’t bring them any closer to being “capitalism”, because the “-ism” part – the idea that capital accumulation is properly and necessarily central to economic life – is absent. By the same token, “capitalism” is a correct label for a system in which that centrality is understood and celebrated.

When people speak of “capitalism” and “free markets” as being separable ideas, and I inquire into that, I generally find that they’re identifying capitalism with the way free-market economies behave in the presence of high communication and transaction costs – big firms with lots of vertical integration, deskilled employees treated like cogs in Taylorized processes, and elaborate hierarchical management structures designed to manage the largest possible lumps of capital to collect economies of scale.

Economies mostly stop looking like that as the costs of transaction and communication drop and technological leverage increases revenue per employee. But it’s still capitalism because specialists in capital accumulation drive most of the productive activity.

esr > Here is basic production economics: the cost of a good can be divided into two parts. The first is the setup cost – the cost of assembling the people and tools to make the first copy. The second is the incremental – or, in a slight abuse of terminology, “marginal” – cost of producing unit N+1 after you have produced the first copy.

Indeed. And if I remember my economics 101 correctly, goods with zero marginal cost tend to lead, not to the abolition of capitalism, but to the emergence of natural monopolies within capitalism. (The largest suppliers on the market end up having the lowest average cost, and so will tend to outprice their smaller competitors.)

With this in mind, I can imagine a liberal or libertarian author getting uncomfortable about the increase in corporate power this would bring. I can imagine a social-democratic author like Charlie Stross demanding leftward political reforms so the government can regulate the monopolists or provide the goods itself. I can see a communitarian author telling his readers to volunteer at nonprofits running natural monopolies. (Who would that be, though? The Apache Foundation, perhaps?)

But a paradigm shift towards mutualism, furnishing a cornucopia of free stuff? How does he get there from a surge in zero-marginal-cost goods?

That said, I personally DON’T look at capitalism/ the free market as big firms/etc. I prefer distributed and resilient systems, not centralized ones. ( a book that echoes a lot of what I’d scraped together over the years though I think he’s got a blind spot where he applies it to climate change near the end is “Antifragile: Things That Gain from Disorder”).

And the more you centralize – aka communism – it doesn’t matter how expert anyone is at organizing things – -the sheer limit of what they CAN know about needs/demands/etc. renders it impossible to do the job effectively.

It does’t help that most of them don’t know anything about managing large organizations to produce anything in the first place – but instead dictate unrealistic goals.

But it still boils down to who decides. In capitalism per se, it’s hopefully people with more or less skin in the game (though in large corps there’s often less of their own skin, and that does bother me at times…) re: the capital – the investors and business owners. In communism – it’s completely unaccountable (and usually ineffective and ignorant from the ground up, leaving aside the ability to know enough in the first place) politicians doing it for our good.

Never looked into Jeremy Rifkin before today. Today, he reminds me an awful lot of Thomas Friedman.

As for “cod-Marxism” – like Paul Sand, I had to go looking this up. That hunt paid off more quickly for “granfalloon” than for this one, but luckily I recognized “cod” was something to separate out as a prefix, and looked specifically for “cod-“. Still took a while. Would you believe I couldn’t find it in OED Online? But I did find it in Wiktionary. Etymology 3, adjective.

h++p://en.wiktionary.org/wiki/cod

From the meaning I read there, I think you would have transmitted close to the desired information with “pidgin Marxism” as well.

The number of both capitalists and communists that end up taking the opposite position from what would be consistent with their broader economic views when the economics of information are the issue at hand is incredibly depressing. They are inconsistent because they have bought into the notion that a piece of information in the abstract (as opposed to a copy of that piece of information) can be considered private property. The problem is that when an abstract class (such as a piece of information) is considered property, it tends to diminish actual physical property rights in instantiations of that class (such as copies of that piece of information), and often in related objects as well.

The number of both capitalists and communists that end up taking the opposite position from what would be consistent with their broader economic views when the economics of information are the issue at hand is incredibly depressing.

I think you can rephrase that to:

The number of people that end up taking the opposite position from what would be consistent with their other views when economics are the issue at hand is incredibly depressing.

Regarding private property – I haven’t read the book but actually Marxists do have one good idea here – of course it does not make it right, but it makes a bad system popular, because at least one real world problem is addressed.

Basically you own land for example, you get to make the rules and prevent intrusion. It is fine as long as – using agricultural land example – the land is not too big for your to farm alone. The problem is when you own a huge land, and others own nothing, and the world is full and you cannot homestead anymore. These people need to work as wage laborers to survive. As such, they need to work on your land, and obey your rules. In such a situation, private property creates a hierarchy, a system of rulership and domination that cannot be properly called anarchist, because those people are stuck between a rock and a hard place: between the necessity to earn an income to eat and between the fact that they can only do so by basically accepting to spend most of their awake hours as subjects of a private kingdom. And this is a problem. This is not an equitable and free situation.

Of course the whole thing really pivots on one concept, whether they really have no other choice? And how could that choice be enlarged? How could we get to the point when there is a lot of other choices?

You see, if want to know how such a system of bad ideas as Marxism got popular, that is because it fulfilled the demand to give some kind of an answer to certain problems people feel to be real. This is one of them. This is felt as real. Solve it, and you automatically reduced the demand for Marxist type ideas.

@ESR to sum it up, the only way to kill Marxism is to starve it from attention, from demand, and that is to convince everybody in the world that they are NOT condemned to a perpetual wage-laborer, employee existence, that the capitalist class system is not rigid, that everybody has a good chance to open their own shop or farm or whatever small business one day and thus actually enjoy the advantages of private property exclusion rights, not just be limited and ruled by it. And the best way to convince people is to actually make it so – this is why I am reading Chesterbellocian Distributism, there are a few good sounding ideas in there (guilds with voluntary internal price floors to avoid corner-cutting, anyone?).

Can I be technical? I happen to hold a degree in plastics engineering(1998), and I’d like to add a few things to the debate on this specific topic.(NB : I’m not qualified to judge metal or ceramics prototying, even if some of my rant probably applies)

(1)3D prototyping was seen as crappy prototyping in those times. Today, it can be seen as prototyping on steroids. Tomorrow, it will probably be dirt-cheap, wonderful, mass prototyping. Yet, it still will be prototyping. Not pure mass production.
Mass production is the production in big numbers of the same element, with maximized quality/cost. That’s the key. Materials(especially plastics)’s quality do not depend only on their shape. Quality also depends on their internal structure.
Exemple : A mill produces cylindrical buckets in Polypropylen. Every 8 seconds, the injection machine spits a 1-foot high bucket of high-quality, able to be stored in huge piles, with barely more than one milimeter of thickness, wet-proof, etc…
You can’t compete with it with 3D printing.
(1)Your bucket will be pixellized. For having the desired conicity(optimized for transport), you’ll need another operation to finish the surface.
(2)The mold currently used is designed to have plastic molecules oriented to optimize the mechanical resistance of the bucket. 3D printing does not allow such fine tuning(by definition, molecules can’t align between layers).
(3)Consequence of point 2 : your 3D bucket is thicker. It costs more polypropylen to manufacture, is heavier to use.
(4)in the 8 seconds cycle time of today’s bucket production, 80% is cooling time. Cooling is easy in a mold because you can cool the mold itself. Cooling is tougher in air, and therefore takes longer. Plus, remember (3), your bucket is thicker. Therefore cooling time is even longer. Plus layers are not all printed at the same time(I’m not expecting a 3D printer to spit a hot bucket in less than 1 second soon) ==> Production time will be multiplied.

Add to this that no, you can’t easily transport plastics as you can transport water
because (a)usable plastics come under “pellet” solid form
(2)you can’t melt it – each time plastic “melts”, it loses nearly 30% of its mechanical resistance.(that’s also why recycling plastics is a near-impossible task).

The link provided by Patrick Maupin is interesting, but ignores the limits of 3D printing : it cannot replace mass production, be it on price, quality or build time.

That being said, it is wonderful anyways : it makes possible to repair your old washing machine whose broken is no longer mass-produced. The replacement will be heavier, low-quality, costlier than its elder mass-produced counter-part…but it will be available. THAT is the 3D-printing revolution, and that’s awesome. It can also be a big help for preparing the mold itself(and probably a few other things I forgot). But it is no magic bullet Mr Rifkin describes – by far.

I won’t comment on the ideological point of view, but the simple fact that Mr Rifkin forgot to make his homework before mentionning 3D-printing is a good (though strongly negative) clue about the overall quality of its thesis.

>When people speak of “capitalism” and “free markets” as being separable ideas, and I inquire into that, I generally find that they’re identifying capitalism with the way free-market economies behave in the presence of high communication and transaction costs – big firms with lots of vertical integration, deskilled employees treated like cogs in Taylorized processes, and elaborate hierarchical management structures designed to manage the largest possible lumps of capital to collect economies of scale.

That is part of it. But. Basically a free market is a form of governance, i.e. absence of interventions, while capitalism is more of a structure of ownership of property, characterized by most people having to do wage labor to survive because they own no capital to work with. This is not really just communication and transaction costs. It is another crucial feature that a lot of people should own no property at all, so they must do Taylorized wage labor to survive. This is why Chesterton said that actually we should call it proletarism, not capitalism, because the important _structural_ feature of capitalism is not that some folks own a lot of capital, the important thing is that most folks _don’t_ own capital at all, have no chance of setting up shop, and thus must become Taylorized wage laborers to survive.

Again if you don’t grasp something like this – how the “masses” not having any productive property forces them to sell their soul and thus creates the “vast industrial armies” and the corporate system – you will never understand why bad ideas like Marxism get popular and get attention, where the demand comes from. I specifically mentioned Chesterton / Belloc because they must be roughly palatable to you – they criticized the structural problems of capitalism (which creates the attention for stuff like Marxism) but without worshipping government or force, because structure of ownership and governance (with force) are not the same things. They are entirely orthogonal.

It is possible to have the worst of both worlds, like the Soviety system, where all that force and intervention and murder still did NOT cause to the abolition of wage labor, people basically still had to find a job to survive and they had actually less chance to set up shop than before. Communism had all the faults of corporate capitalism and none of the advantages.

This is why we can hope that the best of both worlds, a Chesterbellocian world of self-employed people on a free market, could one day be achieved.

>Rifkin wants to go further and turn the whole deal into a self-organizing forwarding network in which (in particular) warehouses that serve only single companies are rare and freight forwarders function like routers between these “buffers”. It’s not a bad idea, and it’s not original with him.

Oh, so he wants to reinvent Ingram then. Haven’t read the book, but this sounds suspiciously like what a distributor does.

@el_slapper:
Would it be possible to have a reasonable process to convert natural gas, electricity, and water into a 3D-printable polymer? I’m not worried so much about rate of production as space/noise/safety of the process.

As for your bucket comparison, I’d point out that at least for speed, 3-D printing doesn’t need to compete with the marginal time for mass-production of buckets, but on the time it takes me to get in my car, go to the store, buy a bucket, and come back home (or click to order on Amazon and have it shipped to me). And, most people might be willing to rearrange their time consumption around the production time for the bucket if they then have more usable time available.

@el_slapper, Keep in mind that most people with a highly optimistic view of 3d printing believe that the technology to align molecules and to print with a fine enough resolution to give the surface an arbitrary shape and texture will exist some day, so your objections will not be taken seriously as a permanent reason that 3d printing is inferior to conventional manufacturing.

@Random832 : point taken. Production times will always be slower, but if nanotechnologies meet their expectations, you can expect molecular manipulation. That’s still quite a few decades(or centuries, who knows?) from now. That’s possible, yet.

@Garrett
==>”Would it be possible to have a reasonable process to convert natural gas, electricity, and water into a 3D-printable polymer? I’m not worried so much about rate of production as space/noise/safety of the process.”
That’s more chemicals than plastics transformation, but I’ll make an (nearly) educated guess anyways : no. No because the pressure required involves heavy machinery. No because plastics require number of secondary components to fe fully usable(especially plasticizers).

==>your other point is probably true, OTOH. I was thinking about standardized buckets for standardized uses(as containing the materials you buy for building your house), but for many uses, yes, 3D printing can be a replacement. In my bucket example, if you need an EMPTY bucket, yes, the 3D printer may be, in a few years, a replacement. Or a mechanical spare part, or a decoration for your bedroom, or….. or whatever simple that can afford to be average-quality, and in plastics. That’s a lot of things.

My point is more for industrial complex products : as long as you need a few parts poperly assembled, 3D printing is a no-go for a long time. I don’t even speak about cars, or electronics…

@ Winter – What makes you so special that you “own” the land and we do not?

An epic question. (land = capital)

If you are already a land owner, then you’re apt to defend the current political system that legalizes and secures your ownership. If you are starting from scratch, and have no practical means of climbing the ladder to ownership, then alternatives become attractive (as Shenpen notes).

Historically, nations with a large middle-class tend to produce the most wealth.

I won’t comment on the ideological point of view, but the simple fact that Mr. Rifkin forgot to make his homework before mentioning 3D-printing is a good (though strongly negative) clue about the overall quality of its thesis.

Mr. Rifkin does not forget to do his homework. He doesn’t care to do it. He isn’t interested in the truth. His shtick gets him paid and gets him laid.
Read On Bullshit, by Harry G. Frankfurt.

@Garrett
==>”Would it be possible to have a reasonable process to convert natural gas, electricity, and water into a 3D-printable polymer? I’m not worried so much about rate of production as space/noise/safety of the process.”
That’s more chemicals than plastics transformation, but I’ll make an (nearly) educated guess anyways : no. No because the pressure required involves heavy machinery. No because plastics require number of secondary components to fe fully usable(especially plasticizers).

So we want 3D printers that use “plastics” cooked from plant materials.

Anyhow, I agree that it will take a long (infinite?) time for 3D printers to beat mass production facilities on price and quality. Meanwhile, there are many things that are to specific to be mass produced economically.

And we can always design halfway products: A mass designed skeleton which is customized in a 3D printer.

Yes, there are defensible answers to that, just not _convincing_ answers. I have a favorite thought experiment or parable I like to tell to libertarian friends to get them see things are a bit more complex:

Comrade Stalin’s Free Market

Basically in this alternative universe in 1950 Stalin realizes that libertarianism is a greta idea. He privatizes everything that was owned by the Soviet state or party or communes… to himself. That’s right, from that on he owns every factory, kolkhoz, farmland, road, highway, railroad, even those high-rises block houses. And from that on, every GULAG is closed, everybody is free to do everything they want. It is great, millions of people are fred from torture and early death and everybody can start any business, no regulations, no taxes.

Except… that Comrade Stalin does not really like competition that much. It must be an old reflex. Of course he cannot regulate against them or tax them or nationalize them anymore. All he can do is to compete. Which he does. Thankfully he owns a lot of stuff, so that competition is fairly easy. For example he can forbid the competing company to use his roads. For the rent they pay in his buildings, they must pay 100 times as much as anyone else. And anyone who dares to buy from the competition must also pay 100 times higher rent. And the farms he owns are not allowed to sell them food. So, basically there is no competition whatsoever, everybody must work for Stalin at any wage he thinks is OK, and buy the goods at any price he sets. The Non-Aggression Principle is perfectly uphelf, yet economically it is still a perfect autocracy.

Now the question is, is that a properly functioning economy?

When not, can we all admit that the structure of ownership matters just about as much as governance – that ideally you want both a free market and a widespread property ownership?

>When not, can we all admit that the structure of ownership matters just about as much as governance – that ideally you want both a free market and a widespread property ownership?

I think the reason this doesn’t present itself as a foreground issue for Anglo-American libertarians is primarily historical. We are culturally descended from yeomen (small freeholders) in northern European societies where land ownership was never extremely concentrated even in the high-Feudal period. Thus, our folk memories don’t include the kind of history that would make your Stalin-as-ultimate-landlord scenario seem plausible/terrifying; to us it actually seems ridiculous and obviously unstable.

I hope you understand that I’m not saying we shouldn’t take this issue seriously, just explaining why it’s difficult to get us engaged with it. We have a gut belief that distributed ownership is the natural order of things and no more needs to be argued for than (say) the law of gravity.

@ShenpenAs such, they need to work on your land, and obey your rules. In such a situation, private property creates a hierarchy, a system of rulership and domination that cannot be properly called anarchist, because those people are stuck between a rock and a hard place: between the necessity to earn an income to eat and between the fact that they can only do so by basically accepting to spend most of their awake hours as subjects of a private kingdom. And this is a problem. This is not an equitable and free situation.

Of course the whole thing really pivots on one concept, whether they really have no other choice? And how could that choice be enlarged? How could we get to the point when there is a lot of other choices?
As long as there is more than one land owner in an area, there are other choices. As long as people have freedom to move to other areas, there are even more choices.

You see, if want to know how such a system of bad ideas as Marxism got popular, that is because it fulfilled the demand to give some kind of an answer to certain problems people feel to be real.

I fail to understand how the problem of “spend most of their awake hours as subjects of a private kingdom” is solved by “spend their entire lives as subjects”.

A government powerful enough to force land owners to treat employees “fairly” is also powerful enough to make slaves of those employees.

Related to Shenpen’s concern, there’s a fact that bewilders me. In the US certainly, and probably also in other western countries, there exists this thing called a progressive income tax. It is defended on the grounds of ‘tax the wealthy, decrease inequality, 99%’ and similar mantras. Yet it’s an income tax, not a wealth tax. Wealth, itself, only seems to be taxed in the form of land taxes and death taxes. Plus the occasional regulation/eminent domain seizure. And it’s much easier to avoid these taxes than to avoid an income tax.

Personally, I’d prefer to decrease government spending and balance the two by decreasing income taxes. But on progressives’ own terms, their actions don’t make sense to me. What am I missing? Why do the progressive leftists defend an income tax to the death, with rhetoric suited to a wealth tax instead?

David W> Why do the progressive leftists defend an income tax to the death, with rhetoric suited to a wealth tax instead?

While I don’t consider myself a progressive leftist, I would observe that there’s no contradiction between having progression in the income tax and taxing estates and property at high rates. For what it’s worth, the Bush tax cuts in 2001 and 2003 made the income tax slightly more progressive (by carving out a new bracket for low-ish incomes), while making the overall tax code far less progressive (by rigorously cutting estate taxes, property taxes, and taxes on capital gains and interest income). House- and Senate Democrats opposed the whole package. This suggests to me that left-of-center politicians in America care about progression in the general tax system, not in the particular part of the tax system that is the income tax.

On an independent note, you can have a tax system that doesn’t tax wealth, but does tax capital income at the same rate as any other income under a progressive income tax. If the United States did this, the consequence would be the same as the consequences of raising a wealth tax.

Why do the progressive leftists defend an income tax to the death, with rhetoric suited to a wealth tax instead?

Because they’re basically both means of penalizing private production. Capital accumulation (of many kinds, but certainly including material goods) is a prerequisite for productivity gains, and income and wealth taxes both serve to discourage individuals from work and investment that would produce “unequal” outcomes when compared with those who do not work and do not invest.

@Random832 : point taken. Production times will always be slower, but if nanotechnologies meet their expectations, you can expect molecular manipulation. That’s still quite a few decades(or centuries, who knows?) from now. That’s possible, yet.

Eh, that’s not far enough for what I’m saying. The pie-in-the-sky crowd _expects_ the endpoint of 3d printing development to be Star Trek replicators. They won’t get it, but that’s what they expect.

On an independent note, you can have a tax system that doesn’t tax wealth, but does tax capital income at the same rate as any other income under a progressive income tax. If the United States did this, the consequence would be the same as the consequences of raising a wealth tax.

No, the consequences would be considerably different. Income tax makes it harder to become wealthy; wealth tax makes it harder to stay wealthy. In either case, the knob of progressivity makes it possible to define wealthy according to whomever happens to be in power.

Arguably, we have a progressive income tax and no wealth tax because the power is aligned between those who are already wealthy, those who would never have hope of becoming wealthy, and those who imagine themselves wealthy, but don’t calculate the tax hit that will keep them from ever getting there.

If we really want to reward the “job creators” then for a given level of revenue, it might make sense to reduce tax rates at the top and add a wealth tax at the top, which would presumably have the effect of shifting tax from those who have put their wealth to work on to those who haven’t.

The point is about the relative value of the autonomous knowledge (capital) economy versus the vertically integrated (monetary) capital economy. As the autonomy of creation increases in both granularity and speed-to-market (Linus principle of “publish often”), the number of nodes of sharing increases and the value of that knowledge sharing network increases by the nodes squared. We have chart confirmation of that law with the history of the Bitcoin price.

Specific example would be sharing a 3D printing design, and others autonomously iterating on that design. The design is open source. Music compositions, medical art, etc.

Thus the vertically integrated economy falls in relative value. How can you reason that we will pay the same or significantly for something produced by the economy that will be worth relatively much less than it had been?

With mass production, the value-added of the knowledge input was amortized over the capital cost of the factory and millions of produced copies. Thus the knowledge networking value was insignificant. Whereas, when knowledge can directly create with near real-time publishing, the knowledge networking value increases by the square and outstrips any startup costs. Moreover, incremental edits amortize the startup costs over many knowledge networking connections, and the value is the square of the connections.

The key is that open source knowledge is always changing and the knowledge workers benefit from autonomously iterating each other’s designs, because the value of the network increases by the square of the participants who share. Metcalfe’s (or Reed’s) Law is at the heart of why sharing creates more value for all participants. That is not saying all nodes connect with all other nodes, rather the value scales proportional to the square.

What does agriculture have to do with network value of knowledge creation?

Do carrots have anything to do with open source business models?

Carrots will continue their downward spiral of relative value. Iron used to be a precious metal. Commodities have trended downward in price for millennia. If knowledge can be unleashed from vertical integration gridlock, those trends should accelerate.

The refutation I expect is that there are many contributors to Linux and to aggregate value and then distribute it to the contributors requires business models such as corporate sponsorship. I agree a dearth of modularity is a barrier, but it doesn’t apply to all types of creations. And I was working on higher-kinded semantics computer language to hopefully improve modularity.

Even for Linux we could ponder a pay-per-download micro payment with a new crypto-currency, then have a list of contributors ranked by LOC and distribute to them. Not sure if that works, but I am not going to try to pretend I’m as omniscient as you and know all the limitations of ingenuity of mankind.

>The activity that can’t be automated is creativity and knowledge creation. Thus it should rise in relative value.

For Rifkin’s predictions to come true it would not suffice for knowledge creation to rise in value. For his predictions to come true, material goods would have to fall to zero marginal cost. That will not happen, because atoms are heavy.

You are just as wrong as anyone who around 1900, observing the steep fall in marginal cost of manufactured goods, predicted that food would become effectively free.

While I don’t believe the end of private property is coming any time soon (or that it would be desirable), I *do* see a trend where it’s easier for individuals to set up businesses than it used to be, provided they start out with certain skills and resources. Cheap cloud hosting and modern Javascript tools mean it’s much cheaper to start a consumer web business than it was a few years ago. It’s also easier to set up a web-based import-export business that’s basically pure arbitrage.

I don’t know how far this trend could spread, but we might be headed towards a future where the marginal cost of being a small business owner is trivial if you have programming skills and/or social capital.

I also believe that the cost of *living* is much lower than the cost of living *conventionally.* Being a homeowner in a trendy area, sending your kids to college, etc. is expensive. There are alternative living arrangements that are much cheaper, but require dropping out of the world in ways most of us aren’t comfortable with. This means that we may already, to some extent, be living in a world where the basics of survival (health care excepted) are cheap; it’s just that typical lifestyles haven’t adapted to accommodate this fact.

I could imagine a plausible future where a large chunk of the population could live comfortably while working far fewer hours than Americans usually do. The whole point of technological improvement is that it makes labor more efficient. If we have technological improvement at all, it should mean we can get the same goods with less labor.

(We already have this with housework, but we don’t acknowledge it often. Women in the 50’s spent much more time on housework than we do. There’s a second revolution in errands that comes with the internet; I’m from a generation that goes shopping much more rarely than our parents did, doesn’t have to balance checkbooks, etc. We’re trading time spent on errands for leisure.)

> For Rifkin’s predictions to come true it would not suffice for knowledge creation to rise in value. For his predictions to come true, material goods would have to fall to zero marginal cost. That will not happen, because atoms are heavy.

Mea culpa I haven’t read the book. I indicated in my linked refutation, that I wouldn’t agree with any Communist basis and agree with Eric’s critique on that aspect. For the conceptual idea to scale, there must be symbiosis between individual gain and collective gain, per the Eric’s Inverse Commons in the Magic Cauldron.

For example, one could argue that any initial start-up cost for a creation couldn’t be offset by the knowledge network value of incremental edits because the initial creator is not directly receiving the return on investment. My counter logic is there may be business models dealing with modularity or diminishing trail of appreciation (citation) that when combined with micro payments can route remuneration backtracked to the creators. Moreover the non-monetary square law scaling of the Inverse Commons applies in that participants gain the return of the creations and incremental improvements of their brethren. It is a mesh topology N-highway of sharing. My belief is that according to gift culture Eric outlined, the community is aligned towards acknowledging sources especially when the act of doing so is only an insignificant (automated) micro payment or other remuneration models the ingenious may develop. Insignificant micro payments then aggregate to the creators at the rate of the participants squared. The squared law seems to be so powerful and at the heart of why the Inverse Commons is the “only known positive scaling law of software engineering” as so eloquently and astutely noted by Eric. That audio of Eric is permanently imprinted in my primary consciousness. I can never forget random “monkeys beating on the code” can outperform the cathedral of closed source (which I want to extend to vertical integration in general).

Also I noticed in the Bitcoin and now especially in the Dogecoin community, there is much more tipping and donations than I know about in the fiat world. The participants understand that to make their ecosystem grow, they need to reward participation. That is not Communism because it is an individual decision, no Max Weber central authority is holding a gun to each of our heads. You can see in my linked discussion thread, the participants are rallying the concepts and refining them perhaps better than I could, or at least differently and scaling requires diversity.

Atoms are heavy but that is lacking information. How heavy? Relativity is all the matters here. I never wrote zero, I wrote relative value is trending asymptotically towards zero.

> You are just as wrong as anyone who around 1900, observing the steep fall in marginal cost of manufactured goods, predicted that food would become effectively free.

In fact food declined from say a third or half of someone’s income to something on the order of a tenth now in the developed world. The third world didn’t industrialize so was devalued. The industrial economy was more valuable than the agricultural economy, and to survive the agricultural economy had to move to higher economies-of-scale and automation, thus significantly lowering relative prices.

And now the Knowledge Age economy is devaluing the Industrial and Agricultural age economies. Food is maybe a hundredth of my income and that is the future.

> We’re still a long way from solving the shortage of skilled labor, as anyone who has ever needed a plumber can attest.

I am in the Lazarus Long camp that says there is nothing the government can’t unimprove if it can touch it. Plumbing is not a extremely highly skilled activity, at least without the kafkaesque, labyrinth of building codes that must be navigated in some jurisdictions. Of course I am not arguing that building best practices aren’t a good idea if done in the free market. I strongly suspect the supply of plumbers is restricted by the onerous licensing requirements which mismatch the education level of someone who wouldn’t be bored out their freakin’ mind to pursue that career. I was an autodidact plumber when I was 5 years old. Currently it is difficult to find a plumber in the post-BRICs NICs portion of the developing world, because the debt was driven sky-high by the Fed’s ZIRP carry trade and uneconomic construction is going full tilt (to implode globally 2016 in a massive conflagrapocalypse).

I expect the discussion will likely digress to the usual pissing politics, so I won’t participate further unless there is a solid refutation of my salient point about knowledge networking scaling faster than vertical integration.

“from each unit sale will always be overrun by the perpetually-rising costs of technical support, fixes, and upgrades. ”

Utter bolocks. Software houses give support for a limited number of years, much like a company manufacturing physical goods gives a warranty for a limited number of years. After that, it’s fix it yourself or pay us to fix it. If a company making physical goods can calculate the warranty liability into the price, so can software houses do for support.

In fact, software houses have an advantage, as support comes in the form of patches instead of costly repairs, and the EULA strips most of your warranty rights anyway (the open source licenses do the same, even if you ‘ve techincally paid for your copy, so shhh…).

My point is, you don’t have to perpetually incease the price of your software to remain profitable. The reason prices of certain software increase over time is because, once you have learnt the way a program works or have files in it’s proprietary format, it’s hard to move to something else, an the software house knows it. For software like media players which don’t have such problems, it’s cut-throat competition when it comes pricing. The only reason they can charge you at all is because FOSS and freeware apps don’t do Bluray or 3D.

PS: See? When you don’t work backwards, aka you arrive to the conclusion first (“open source is the only viable model”) and then do the analysis, things make sense.

Ask a mathematician sometime about the difference between dividing by epsilon and dividing by zero.

It’s also easier to set up a web-based import-export business that’s basically pure arbitrage.

Decreased transactional friction leads directly to elimination of the opportunities for arbitrage. I can buy plenty of products and services directly from Shenzhen, and there’s no profit for a new middleman.

I could imagine a plausible future where a large chunk of the population could live comfortably while working far fewer hours than Americans usually do. The whole point of technological improvement is that it makes labor more efficient. If we have technological improvement at all, it should mean we can get the same goods with less labor.

I don’t think there’s any disagreement on this point, but this is simply claiming an incremental difference of degree rather than an overthrowing of the established order.

>I can buy plenty of products and services directly from Shenzhen, and there’s no profit for a new middleman.

Sorry for the small tangent, but that’s not quite true.

Mainly because doing business directly with anyone in China sucks, if for no other reasons than shipping delay, shipping loss rates, and the ‘life is like a box of chocolates’ factor when dealing with Chinese vendors. Some of that can be mitigated by dealing with vendors who seem to care about reputation (and the return business and ability to charge higher prices that comes with it) but there are limits.

You see this in a small but very explicit way in the little flashlight enthusiast subculture, particularly the budget end. All the parts are either made or assembled in China -best case with batteries, the cells are made in Japan or Korea and made into batteries/battery packs in China. There are lots of vendors with an online presence you can deal with, but word of mouth on who is actually worth dealing with, and for what items, is *very* important. And even with best word of mouth, you sometimes still just lose.

There is still room for a middleman for purposes of convenience and risk reduction. One stop shopping for the little bits you’d otherwise need to order from 4 different places, that doesn’t spend 2-4 weeks in transit across the Pacific, with all the goods vetted by a (relatively) local businessman? So long as he’s efficient, doesn’t insist on too high a markup and takes care of his reputation (by taking care of his customers and not selling crap) there’s still room for a middleman.

If China were less hopelessly corrupt this would be less of an issue. But it is, so it is – it’s hard to get information out of a Chinese company, even if you did the information is subject to change at their whim without notice, and you can’t hold them accountable. (I think I need to read ‘Poorly Made in China’.)

If we really want to reward the “job creators” then for a given level of revenue, it might make sense to reduce tax rates at the top and add a wealth tax at the top, which would presumably have the effect of shifting tax from those who have put their wealth to work on to those who haven’t.

That’s a fair point. For reasons outside the scope of this thread, I’m disagreeing with myself about the extent to which “rewarding job creators” should be a priority in taxing wealthy people. (This is in contrast to, say, rewarding Ted Turner for protecting wilderness by buying lots of land and preventing it from getting developed). But you’re right: If you want public policy to set this priority, lower capital-income taxes combined with higher property taxes make better sense than the opposite.

> Decreased transactional friction leads directly to elimination of the opportunities for arbitrage. I can buy plenty of products and services directly from Shenzhen, and there’s no profit for a new middleman.

I assume your implied point is that as knowledge moves more freely then no one can build a Buffet-esque moat to defend profit. Your correct use of the term “middleman” goes to the heart of my counter-logic. Remember I wrote upthread that knowledge creation isn’t fungible. So when you need something created based on an existing body of work, you need an expert. Let me distill that for you. As the transactional costs of knowledge sharing decreases, the profit moves closer to the producer of knowledge and away from the rent-seeking middlemen. Diversity of creation and the maximum division-of-labor guarantee that moat but where it is rightfully deserved personal property. People will finally own their expertise and creative energy.

>A government powerful enough to force land owners to treat employees “fairly” is also powerful enough to make slaves of those employees.

Entirely besides the point. A governance issue is not the same as a structural issue, thy are orthogonal. This is the whole problem. You cannot tell people who complain about structure “Wait, I can guess what kind of governance you want, and it is wrong!” because it is not even closely related to the original question and it clearly shows you don’t care about what they care about. You can only address structural questions with structural answers. Failing to do so, you just generated demand for the wrong kinds of governance answers (i.e. Marxism).

At the very least, it is important to show empathy towards structural complaints and not write them off as disguised attempts to shoehorn in a more intrusive governance.

Obviously, income is liquid, wealth is not, it is typically shares of a corporation. Taxation is done in liquid currencies. I don’t think even hardcore progressives think forcing people to liquidate illiquid assets is a particularly good idea.

Which it obviously isn’t. (If you live somewhere with inheritance taxes, make sure to write your will so that you don’t leave someone a house without also some cash to pay the tax with, or else they may forced to sell it.)

“A government powerful enough to force land owners to treat employees “fairly” is also powerful enough to make slaves of those employees.”

This is most likely false, given that managing land tenure is a basic function of government. Governments enforce land tenure systems as is; it is quite proper to demand that this service should be endowed with some kind of basic fairness. Even John Locke never supposed that the right to homestead a piece of land by working and improving it should extend to circumstances where there was not “… enough, and as good, left in common for others … [s]o that, in effect, there was never the less left for others because of his enclosure for himself. For he that leaves as much as another can make use of does as good as take nothing at all.” But this clearly does not apply to land ownership at present, given that valuable plots of land, e.g. in central urban locations command significant rents.

>We have a gut belief that distributed ownership is the natural order of things

I am positively surprised that you understood it so perfectly. I thought this would be one way of looking at things that you basically vaccinated against.

Maybe this not even just folk memory. Even well into the 20th century, maybe even today, it seems that it was easier to get self-employed in the US than in other first-world nations, probably due to a lucky combination of culture and low pop density on actually good agricultural land. (Is there an accurate, statistical way to express that while Canada, Australia or Sweden seem to have low pop density, a lot of land is really low value there and the density on good land is actually high? Is there some kind of number of people living per crop yield kind of measure? Would explain a lot of things.)

As a result the attitude that many people are basically destined to be wage earners forever in a very rigid class hierarchy without any chance of setting up the own shop – what old Karl would call “class consciousness” – did not develop in the US. Interestingly, it seems to be de-developing in Germany etc. etc. as well lately, there is today definitely more of a professional consciousness or identity, not a worker one. The Audi factory workers think of themselves more like experts today, hovering between blue and white collar. Working class consciousness sounds today not just wrong, but as clearly something of the past, definitely dusty sounding and outdated sounding, like eugenics or scientific racism. Maybe this was just a phase.

> it clearly shows you don’t care about what they care about.
You know what I don’t care about? What the advocates for various policies claim to care about. I’m sick of being told that I “don’t care” about this or that group, as if that somehow made the policies of those who claim they do care better.

The “structural problems” you claim exist in capitalism are not entirely the fault of capitalism; most of them are actually due to governmental interference in the market. And those that aren’t are not solvable by such interference. It may be possible to address them via non-governmental means, but they will never be fully “solved”.

There will always be perceived societal ills. Any action taken to “solve” them will cause/exacerbate others (or even the very ills they’re supposed to “solve” themselves). It’s not that I don’t care about those problems; I know that all of the “cures” are worse than the disease.

There are no solutions. There are only tradeoffs. The advocates for “solutions” consistently overstate the benefits and understate the costs. It’s almost like they don’t “care” about anything other than their allegedly-good intentions, and think that if they just “care” enough, no bad side-effects need to be considered.

Bzzt! Stop right there. Again, you automatically jumped to policy or governance, when I was discussing structure. You basically demonstrated precisely what I wrote – if people have a problem with structure, and you just assume it is advocating a policy or governance, then you are just not understanding them. And this is precisely how you push people into the left-wing group policy-wise.

The tricky thing is to do understand structural criticism and yet stick to your free-market ideals. This not easy. Still if I can recommend a contemporary book, John Medaille’s Towards A Truly Free Market is an excellent one.

>The “structural problems” you claim exist in capitalism are not entirely the fault of capitalism; most of them are actually due to governmental interference in the market

Again the category problems. Government intervention is policy. Free market is policy. (I called it governance, but maybe policy is a better term.) Capitalism is a structure. Capitalism does not equal a free market, because a policy does not equal a structure. Capitalism as a structure arised from the Industrial Revolution, when the model of 1000 small tradesmen working with a few employees was replaced by 100 guys owning large factories with 500 employees each. This is a structure, not policy. Protip: given that the word capitalism was invented by its critics, of course it relates to the more problematic of the two: the structure, not the policy.

In the 20th century, the critics of the structure gained power and what they did is basically they left the structure intact – as neither social democracy nor full communism could abolish employment, even though this was purportedly the goal – and instead changed policy: from free market to inteventionism.

Now we can easily agree that it was a monumentally stupid move and really the only shadow of an excuse I can find for it is that war materiel production required these structures, so only policy was changeable.

Later on, from the works of Hayek and others, a renewed interest in the free market was born, a criticism of the new interventionism, going mainstream in the late 1970’s. This is all good. However, the mistake here is that because capitalism (structure) was criticized, then it was not the structure that was changed but policy (free market to interventionism) a lot of people began thinking capitalism equals a free market. This was then popularized. However, it was never true, it is completely ahistorical. They are so different from each other that we can easily find examples of free market policy without capitalist structure, or capitalist structure without free market policy. Capitalist structure without a free market policy is the Soviet Union: you have no other chance but to work as an employee, very, very few people had any chance to be self-employed. Free market policy without capitalist structure is basically the settlement of the Frontier in the US where there was hardly anything resembling a government, however people did not work as employees forever, but after a few years they generally started their own farms, workshops, stores.

So it is important to understand this difference. Of course structural problems did not arise from the free market only. But they did arise from capitalism – because capitalism means this kind of employment based structure, because capitalism is structure, not policy, because a free market is policy, not structure. Because it was a stupid idea to try to fix the capitalist structure by changing free market policy, it does not mean a capitalist structure is the same thing as a free market policy.

> Free market policy without capitalist structure is basically the settlement of the Frontier in the US where there was hardly anything resembling a government, however people did not work as employees forever, but after a few years they generally started their own farms, workshops, stores.

Do you believe this is sustainable without the presence of large amounts of unused land to expand into?

>Do you believe this is sustainable without the presence of large amounts of unused land to expand into?

In a primarily agricultural society it night not be. But the closing of the American frontier roughly coincided with the crossover from an economy in which value creation was dominated by farm output to one in which manufacturing output dominated. Land became a much less important requisite for entrepreneurs. Today, some companies don’t even have physical offices.

I don’t think even hardcore progressives think forcing people to liquidate illiquid assets is a particularly good idea.

I don’t know what political world you live in, but that’s exactly one of the primary goals of most of them. How else would you exact a wealth tax if the assets weren’t bringing in enough current income–after corporate taxes and then additional personal taxes–to cover it?

When I use the word “capitalism”, that’s precisely what I mean. It’s what a lot of people mean.

> You basically demonstrated precisely what I wrote – if people have a problem with structure, and you just assume it is advocating a policy or governance, then you are just not understanding them.

OK, if someone has a perceived problem, and they don’t advocate some action to address it, then what exactly is it we’re even discussing? Is this one of those deals like when women say they just want us to listen to them and not try to solve their problems?

Maybe if more people could “have a problem with structure” and not advocate some kind of policy, I wouldn’t assume it. But my experience has been that people talk about a problem so that they can do something about it, or at least to justify something they want to do even if it won’t materially affect the problem.

Um, two words: Silicon Valley. And Detroit (or the Rust Belt), for the case of manufacturing. Yes, dirt is _hugely_ important as a result of agglomeration dynamics, economic geography and the like – even in a non-agricultural economy.

>OK, if someone has a perceived problem, and they don’t advocate some action to address it, then what exactly is it we’re even discussing

Wow, are you aware that you just created the inverse parody of left-wing statism? That basically any social problem either should be legislated away or does not matter?

Of course there are other options. The first and most important one is trying to understand things as deeply as possible before you make any choice. Structure vs. policy is incredibly useful. Generally as politics too functions as supply and demand (there is a felt need, and demand and political entrepreneurs sell policy solutions in return for votes, and this is the supply part), it is incredibly important to see the demand side, the felt need of employment based capitalist structures making a lot of people feel they will never be self-employed, and the politicial supply side, that political entrepreneurs, politicians offered policy solutions that changed actually not that structure of employment (or “wage labor”) vs. self-employment, but changed the policy from free market to interventionism. Basically you could say it was a form of hijacking. This is very, very important to get, suddenly you understand a lot of things better. The rest you can find in the John Medialle book I recommended :)

Getting the difference between structure of policy also makes policy more intelligent. You suddenly stop assuming that somehow more free market means more capitalism and more interventionism means less capitalism, you begin to get it is a complicated relationship. Suddenly you find ideas that could actually reduce capitalism (make more self-employment possible) by actually turning interventions down, not up.

But maybe the most important thing is that by getting structure vs. policy you stop being an anti-anti-capitalist and get a more complex view of the complicated interaction between market freedom and capitalism. I mean it is a reaction to a reaction. There was a leftist reaction to 19th century capitalism, and then there was a libertarian reaction against that reaction, this where you are now. But anti-anti-something is rarely accurate and rarely realistic or productive. This is why it is better to actually try to understand the timeline of things and the complicated interactions instead just being anti-anti-something.

> Wow, are you aware that you just created the inverse parody of left-wing statism? That basically any social problem either should be legislated away or does not matter?

He didn’t say that no action should be taken – he said that you shouldn’t assume that they have already picked the same course of action that past people who had a problem with the same issue had picked.

> Wow, are you aware that you just created the inverse parody of left-wing statism? That basically any social problem either should be legislated away or does not matter?

It is a plainly-evident fact that when people start talking about “structural problems” in socioeconomic systems, most of the time it’s a preamble to agitating for government to Solve This Now!™ It has become the reflexive reaction to any perceived problem anywhere: “There oughtta be a law!”. Or worse yet, a “czar”.

I don’t think that social problems are amenable to government action. As the late Andrew Breitbart put it so well: “Politics is downstream of culture.” The only way a (democratic) government can be roused to “solve” a societal ill is if the majority of the society wants the proposed solution, in which case the civil society would already be at work dealing with the problem, and any progress made will be credited to whatever government action follows the cultural shift that is really responsible.

And when a minority attempts to impose a “solution” upon the majority, it won’t work anyway.

“Even just the transportation infrastructure required to get your ear of corn from farm to table requires trillions of dollars of capital goods.” – Suggesting why we need to abandon grotesquely inefficient and overbuilt tax-subsidized boondoggles like the interstate highway system which write off the huge real cost of the corn at Wal-Mart as socialized “national debt.”

I’ve argued this point with Carson on this blog. I think he’s mistaken about it; if you compare across countries, whether a government can afford to subsidize particular transportation modes doesn’t actually seem to have that much effect on the modal mix agriculture ends up using. In particular, the Interstates aren’t very relevant to bulk agricultural produce, which even in the U.S. moves long distances mainly by rail and barge.

Hi Eric,
Thanks for this article, it was very interesting and insightful to read a critique of Jeremy Rifkin’s main premise. I wanted to clarify your meaning of the following sentence:
“Generally there is explicit or implicit government market-rigging in play behind these – which is why talking up “the commons” can be dangerous, tending to actually legitimize such political power grabs.”
So what you mean here is that when promoting “the commons”, you must be cautious because it can actually act as legitimization vice for the government to execute market rigging?
Thanks for your time,
John.

Thank you for elegantly and forcefully describing my (partly gut) feeling after reading the first chapter. I can only imagine what a misguided man this Rifkin must be, and thinking of talking to the man in person frightens me, a man of buzz words instead of logic. Such disregard for your audience…

“The claim that the material input costs will be significant relative to the marginal cost of distributing more copies of intellectual property is wrong because the only costs in material production that can’t be reduced asymptotically to 0 at economy-of-scale and automation are the knowledge inputs. Thus knowledge is infinitely more valuable than material production at the asymptote. The only reason that capital has been able to enslave the knowledge portion of the cost in the material cost is due to inability of fine-grain, autonomous knowledge to control the creative outputs of material production. The 3D printer changes this because the printer will be in every person’s home. The commodity value relative to knowledge value of raw material inputs will fall asymptotically to 0.”

For a very concrete example of how this wrong, think of a cost breakdown of getting a pound of food onto your table. Someone has to grow it; someone else has to move it to where you can buy it; you have to move it from where you bought it. None of these costs are asymptotic to zero at scale, they’re asymptotic to some non-zero figure bounded from below by physical energy costs, because atoms are heavy.

I recognize the style; I don’t know the person’s real name, but he’s an occasionally-plausible-sounding nutcase who I had to ban for flooding my blog with drivel, not abiding by a daily post limit, and then pseudoing through several different names.

I have to confess I am only now reading Rifkin’s book so I don’t have yet the full view.

A zero marginal cost society is not really there. So, if the title is taken literally one may assume its about nonsense.

However if you look into the trend of economy, I find it very insightful indeed. I do think communication technology is overall reducing the marginal cost of production. So even we are not at point zero we are for sure going down.

I don’t know if in the future we will converge to zero. What I know is that current, lower marginal costs or production, undermine the advantage of “scale economies”. Scale economies by definition allow you to reduce marginal cost. New technology now enables a new path towards marginal cost reduction. In this way, new technology erodes the advantage of the big guy.

It was this very advantage that made Mr. Marx believe that economy inherently moves towards cost efficient monopolies and will eliminate anything ‘small’ out there. And because Mr. Marx, seeing how things turned out, must be now pulling his beard, I myself, as a partner in a very small company can enjoy my life and my business independence with no fear of being eliminated by the inherent advantage of any ‘big’. That would have been utterly impossible even 50 years ago.